Hydrocarbon Diplomacy

International business, energy, and diplomacy experts Erwin Arrieta-Valera and Arsen Gasparyan sat down with BRICS Business Magazine to discuss the future of the oil industry, state capitalism, and BRICS. This is what they had to say about these important issues.

What do you think of the emergence of the BRICS association and its impact on global energy and the environment?

Erwin Arrieta-Valera: The BRICS association is a welcome reality and a strong platform for promoting global cooperation in many fields, including energy and the environment. The BRICS countries have reaped political benefits from this union, but it is also good for global interests. Brazil, Russia, India, China, and South Africa are all members of the G-20, a group that balances out the ‘archipelago’ of international institutions. They can promote a mentality of global cooperation and become an example of it in energy and environmental affairs.

I have always thought we should create one institution that focuses on energy and the environment under the auspices of the United Nations. This would give it a dimension of global cooperation like the UN has done for food and agriculture or as UNESCO has done for science and culture. BRICS could probably initiate this process. In my opinion, energy and the environment, like the sky, air, and water, do not belong to any particular geographical location but to all of mankind.

Arsen Gasparyan: It is obvious to me that the emergence of BRICS was a clear shift in economic momentum and influence away from Western exclusivity toward a wider range of nations, including those in the East and South. The global economy is becoming multi-polar. However, the political concerns of the five members will dictate how the BRICS countries can work with one another. China and India still have territorial disputes, South Africa has to wrestle with the question of whether it really qualifies for membership, and Brazil is located in the Western Hemisphere, which is in the United States’ sphere of influence. These issues should be addressed and resolved. Otherwise, BRICS will essentially remain an informal club or bloc. Nevertheless, the latest summit in Brazil and the decision to establish the New Development Bank in Shanghai are quite promising.

As for the impact on global energy and the environment, Russian proposals to establish the BRICS Energy Association, the Fuel Reserve Bank, and the BRICS Energy Policy Institute demonstrate the bloc’s intention to actively engage in the development and strengthening of the BRICS energy framework. Moreover, oil demand in Brazil, India, and China is greatly increasing, and there is tremendous potential for the five countries to work together in terms of resources.


What kind of cooperation is there between Russia and China in the energy sector?

EAV: The fact that both of them are BRICS founding members already demonstrates their cooperation. These two nations are neighbors and both of them have huge amounts of natural resources. They also have large domestic markets and populations, although local transportation is a challenge due to their vast and uneven geography. In addition to business developed abroad, Russia and China need close cooperation in energy investments, operations, and commercialization.

Over 80% of the world oil reserves are controlled by governments and national oil companies. Fifteen out of the twenty largest oil companies are state-owned. Russia and China are leading the way in the strategic deployment of state-owned enterprises in many industries, including defense, electrical power, telecom, metals, aviation, and others. Many states are following their lead. I think that we are more at the edge of a rivalry between free market economies and state-driven capitalism, which will shape the next generation of international politics

AG: Last year, Rosneft signed a $270 billion agreement to double oil supplies to China. This deal was one of the biggest in the history of the global oil industry. Gazprom and the China National Petroleum Corporation (CNPC) agreed to a major 30-year natural gas deal. This transaction is thought to be worth about $400 billion over 30 years, and would send gas from Siberia to China via pipeline. According to CNPC, Russia will supply 38 billion cubic meters of natural gas each year to China, starting in 2018. Russia is going to invest around $55 billion in transportation infrastructure, and China will build the pipeline within its own borders. I think that these facts do not require any commentary. Now both countries need to concentrate more on innovations, technological advances, and applying more science to the energy sector.

The emergence of BRICS was a clear shift in economic momentum and influence away from Western exclusivity toward a wider range of nations, including those in the East and South. The global economy is becoming multi-polar. However, the political concerns of the five members will dictate how the BRICS countries can work with one another. China and India still have territorial disputes, South Africa has to wrestle with the question of whether it really qualifies for membership, and Brazil is located in the Western Hemisphere, which is in the United States’ sphere of influence

The only question is whether this close collaboration will turn into a true strategic partnership, particularly in other fields.

Do you think more countries, including those from Latin America, will join BRICS? And why should they?

EAV: Yes, I think that more countries will join BRICS, including Latin American countries – not only for the balancing role that BRICS may play in global energy and the environment, but also because BRICS membership could be very effective for hydrocarbon producing nations such as Colombia, Ecuador, Mexico, Peru, Trinidad and Tobago, and Venezuela.

AG: It all depends on the efficiency of BRICS’s ‘outreach’ diplomacy. I would also not discount the possibility that some Latin American countries, especially members of ALBA [Bolivarian Alliance for the Peoples of Our America], may want to join BRICS but have to consider US national interests. With them being located in the Western Hemisphere, they are tied to the United States by the adoption of the Monroe doctrine in the early 19th century. Here we might witness some interesting developments in the international relations system.

The US oil boom, climate change, and clean and sustainable energy sources are changing the energy markets. Do you think that we are on the edge of a ‘great energy revolution?’

EAV: The United States is a good example of how the lack of an appropriate energy policy has produced problems in the supply of a strategic, exhaustible, and non-renewable rough material like hydrocarbons, despite the evidence that they possess incommensurable amounts of them. There is no question about the reality of climate change and the need to find clean and sustainable energy sources. Unfortunately, geopolitics – in the Middle East, for example – are changing the energy markets and challenging BRICS initiatives. However, I believe that BRICS can pursue and realize the dream of using natural resources as well as energy generated within a framework of a protected, non-polluted, and very clean environment for optimum quality of life for present and future generations.

AG: We are not on the edge of a ‘great energy revolution.’ An energy transition generally takes a very long time. It took almost a century before oil overtook coal as the number one energy source. Hydrocarbons have provided and will continue to provide the vast majority of the overall energy supply.

The US oil boom and a potential lifting of a 40-year ban on oil exports would definitely spark the US economy and enhance its position and influence. The climate change issue has been embraced by almost the entire global political spectrum. The need for new supplies – renewables and alternatives, plus energy security and climate concerns – has unleashed a wave of research across the energy industry. Yet oil remains the strategic commodity, critical to the national strategies of states and to international politics.

Over 80% of the world oil reserves are controlled by governments and national oil companies. Fifteen out of the twenty largest oil companies are state-owned. Russia and China are leading the way in the strategic deployment of state-owned enterprises in many industries, including defense, electrical power, telecom, metals, aviation, and others. Many states are following their lead. I think that we are more at the edge of a rivalry between free market economies and state-driven capitalism, which will shape the next generation of international politics.

Erwin Arrieta-Valera has over 55 years of experience in the petroleum industry. He worked as the Minister of Mines and Energy of Venezuela and served as Chairman of the PDVSA from 1994-1999. In 1995, he was appointed President of the Organization of the Petroleum Exporting Countries (OPEC), and played a key role in developing an open dialogue between OPEC and non-OPEC countries. Currently, Mr. Arrieta-Valera is retired in Florida and consults for Colombia’s Pacific Rubiales Energy.

Arsen Gasparyan is Director of the US Bureau of Barcelona-based Esproenko and promotes new energy technologies in the United States to improve the productivity of oil and gas wells. His background includes high-ranking diplomatic positions in the Armenian Foreign Ministry, international relations, political science, and extensive business experience in the United States and Europe.

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